Page 24 - gs260202

Cover Story continued

"When the free market ceases at some point in the
future to make significant use of checks, then and only
then should the [Fed] consider leaving the entirety
of check clearing services to whatever private sector
entities still provide those services at the time," wrote
the NFIB. "The day may come when the [Fed] can stop
doing check-clearing work (assuming the law allows
the Fed to stop), but that day is not today, and that day
is clearly a long way off."
What about making checks electronic?

Walker suggested that many of the concerns expressed
by the Fed and commenters could be addressed by
electronically created items (ECIs). "The ECI is a good
alternative for every use case," Walker said.

ECIs are viewed primarily, but not exclusively, as
replacements for paper checks, Walker noted, adding
they are digital images, not unlike the images created
in a remote deposit capture (RDC) scenario, except ECIs
never exist in paper form.

The process of clearing checks between banks has been
fully electronic, using check images, since 2011, so the
necessary investments by FIs have been made and
fully amortized, Walker pointed out. Relying on ECIs,
businesses would continue to follow essentially the
same processes used for paper checks, but without the
costs associated with handling paper. In a white paper
published in 2018, Walker estimated businesses could
save more than $20 billion annually by ditching checks
in favor of ECIs.

ECIs are governed primarily by Fed Regulation CC (the
rule set that addresses check funds availability and
RDC). Because they are difficult to distinguish from
check images, a bank that transfers or presents an ECI
for payment must provide warranties and indemnities
against losses. This has been a major stumbling block to
widespread acceptance and use of ECIs.

Walker asserted that real-time ECIs offer many of the
same advantages as real-time credit payments, such as
FedNow or RTP. For example, there is no need to contract
with real-time payment services providers since there is
a system in place that supports the clearing of electronic
checks between accounts at FIs.

Businesses don’t need special network connections to
use ECIs, Walker said, though new enhanced positive
pay services may require them. Positive pay is a cash
management service financial institutions provide to
help businesses prevent check fraud.

Patti Murphy is senior editor at The Green Sheet, president of
ProScribes Ink (www.proscribes.net) and self-described payments
maven of the fourth estate. Her Today in Payments reports are a
regular feature of the Merchant Sales Podcast.

24